You have been hired as a consultant to the central bank for a country that has for many years suffered from repeated currency crises and depends heavily on the U.S. financial and product markets. Which of the following policies would have the greatest effectiveness for reducing currency volatility of the client country with the United States?
A) dollarization
B) an exchange rate pegged to the U.S. dollar
C) an exchange rate with a fixed price per ounce of gold
D) an internationally floating exchange rate

Question

Quizplus · Accepted Answer

Dollarization, which involves adopting the U.S. dollar as the official currency, would eliminate exchange rate volatility with the U.S. dollar, as there would no longer be a separate domestic currency subject to fluctuations.

You Have Been Hired as a Consultant to the Central